US oil futures settle below $78; Brent slumps as dollar gains

U.S. crude settled below $78 a barrel on Monday. Brent crude also dropped, with both reversing early gains as U.S. dollar strength outweighed worries about conflict in Libya and Ukraine.

The dollar rose 0.2 percent against a basket of currencies on Monday, regaining ground after dropping in European trade. Recent dollar strength has made oil and other commodities more expensive for holders of other currencies, suppressing demand.

Persistent concerns about a global surplus of crude amid signs of slowing growth has also pressured oil prices, which have fallen nearly 30 percent since June.

"There's been a lot of pressure of WTI [U.S. crude] today, there was a big huge reversal as we did see the dollar turn around," said Phillip Streible, senior market strategist at RJO Futures in Chicago. "I think we will probably consolidate around this range, everyone is looking ahead to the OPEC meeting."

"A stronger dollar and slower global growth continue to weigh on the market," said Oliver Sloup, director of managed futures at iiTRADER in Chicago. "When rallies happen, they are being taken as an opportunity to sell."

In Libya, an armed brigade from Operation Dawn, one of the factions backing the rival government, took control of the country's largest oilfield, El Sharara, a commander in charge of security at the site said. If confirmed, it would be the first attempt to take physical control of oil production by the rival government.

Meanwhile in Ukraine, goverment forces shelled the pro-Moscow stronghold of Donetsk on Sunday, putting a fragile cease-fire under pressure. An escalation of tensions in Ukraine could disrupt Europe's gas supplies from Russia, potentially increasing demand for oil.